Archive for the ‘FCPA Jurisprudence’ Category

Chevron Decision Touches Upon FCPA Issues

Thursday, March 6th, 2014

This 2009 post flagged the “War of Words in Ecuador” between Chevron and plaintiff lawyers representing Ecuadorian villagers alleging environmental contamination at oil fields in the Amazon for its potential FCPA implications.

Earlier this week, as noted in this Wall Street Journal article:

“A federal judge ruled in favor of Chevron … in a civil racketeering case [against New York lawyer Steven Donziger, the plaintiffs' lawyer], saying a record $9.5 billion environmental judgment in Ecuador against the oil giant was “obtained by corrupt means.”  U.S. District Judge Lewis Kaplan [S.D.N.Y.] found that … Donziger and his litigation team engaged in coercion, bribery, money laundering and other criminal conduct in pursuit of the 2011 verdict.”

As stated by Judge Kaplan:

“This case is extraordinary. The facts are many and sometimes complex. They include things that normally come only out of Hollywood – coded emails among Donziger and his colleagues describing their private interactions with and machinations directed at judges and a court appointed expert, their payments to a supposedly neutral expert out of a secret account, a lawyer who invited a film crew to innumerable private strategy meetings and even to ex parte meetings with judges, an Ecuadorian judge who claims to have written the multibillion dollar decision but who was so inexperienced and uncomfortable with civil cases that he had someone else (a former judge who had been removed from the bench) draft some civil decisions for him, an 18-year old typist who supposedly did Internet research in American, English, and French law for the same judge, who knew only Spanish, and much more. The evidence is voluminous. The transnational elements of the case make it sensitive and challenging. Nevertheless, the Court has had the benefit of a lengthy trial. It has heard 31 witnesses in person and considered deposition and/or other sworn or, in one instance, stipulated testimony of 37 others. It has considered thousands of exhibits. It has made its findings, which of necessity are lengthy and detailed.”

As relevant to the Foreign Corrupt Practices Act and any potential FCPA liability of Donziger, Judge Kaplan, beginning at pg. 392 of his mammoth 485-page opinion, addressed Chevron’s assertion that “Donziger violated the Travel Act through the use of facilities of interstate or foreign commerce with the intent to facilitate violations of the anti-bribery provisions of the Foreign Corrupt Practices Act (“FCPA”).”

Judge Kaplan concluded that ”[Donziger] did so by using email and by causing money to be wired to Ecuador to further the payment of money to Cabrera, a court appointee [of the Ecuadorian judicial system].”

Judge Kaplan’s decision most squarely addressed the FCPA’s “obtain or retain business” element.  Judge Kaplan stated as follows.

“The SEC and the Department of Justice interpret the FCPA to prohibit payments to court officials and regularly find that such payments satisfy the business purpose test.  [citing to DOJ FCPA enforcement actions against Pride International and Jim Bob Brown].   This court agrees.”

“Here, the payments increased the likelihood that Donziger’s business – that of contingency litigation – would benefit from a favorable judgment. Roughly 30 percent of the 20 percent contingency fee owed to the litigation team accrues to Donziger. He stood to benefit directly from any judgment and, accordingly, from any act that improved the likelihood that such a judgment would issue and its amount. The improper payments to Cabrera were intended to do, and did, exactly that.”

As to “foreign official,” Judge Kaplan stated: “as an expert appointed by the Lago Agrio court, Cabrera was an officer or official of the Ecuadorian court” (citing to an exhibit which stated:  “The Expert [Cabrera] is hereby reminded that he is an auxiliary to the Court for purposes of providing to the process and to the Court scientific elements for determining the truth.”).

As to the “knowledge” component of the FCPA’s third-party payment provisions, Judge Kaplan stated:  “The Court … finds that Donziger was “aware” that it was “substantially certain” that Cabrera would be paid from the funds he wired to the secret account.”

A judicial finding that Donziger engaged in conduct sufficient to establish an FCPA violation is – to state the obvious – a troubling event for him.

In response to Judge Kaplan’s decision, Donziger issued this statement.  In the above-referenced Wall Street Journal article, Donziger is quoted as follows.  “I am a zealous advocate for my clients.  I woud never bribe a judge or perpetrate a fraud … Ultimately I think the Court of Appeals will reverse this decision and whatever damage caused to my reputation will be restored.”

In this press release, Chevron stated, in pertinent part:

“[Judge Kaplan's decision] finds that Steven Donziger, the lead American lawyer behind the Ecuadorian lawsuit against the company, violated the federal Racketeer Influenced and Corrupt Organizations Act (RICO), committing extortion, money laundering, wire fraud, Foreign Corrupt Practices Act violations, witness tampering and obstruction of justice in obtaining the Ecuadorian judgment and in trying to cover up his and his associates’ crimes.  [...]  Chevron’s reputation was taken hostage and held for a multibillion-dollar ransom. Rather than give in and pay these criminals off, Chevron exposed the truth. Chevron is pleased with today’s judgment. We are confident that any court that respects the rule of law will likewise find the Ecuadorian judgment to be illegitimate and unenforceable.”

For additional coverage of Judge Kaplan’s decision, see here from the New York Times and here from Reuters.  In addition, this 2013 Wall Street Journal article goes in-depth as to Donziger and the case.

Did Richard Liedo Win Or Lose?

Monday, December 23rd, 2013

[This post is part of a periodic series regarding "old" FCPA enforcement actions]

This previous post highlighted the 1989 Foreign Corrupt Practices Act enforcement action against NAPCO International in connection with military sales to the Republic of Niger.  The previous post noted that the DOJ also criminally charged the Vice President of the Aerospace Division of NAPCO and that this individual exercised his constitutional right to a jury trial and put the DOJ to its burden of proof.

That person was Richard Liedo and his enforcement action is worthy of its own post.

Among other things, the Liebo enforcement action resulted in a rare appellate FCPA decision, and an often overlooked one at that given that the court concluded that a jury could find that a subordinate who acted at his supervisor’s direction in providing a thing of value to a foreign official lacked “corrupt” intent.

In this lengthy 62 page criminal indictment, the DOJ charged Liebo in connection with the same bribery scheme alleged in the NAPCO action.  In pertinent part, the DOJ alleged that in connection with aircraft sales to Niger, Liebo conspired with others to violate the FCPA by making payments or authorizing payments of money to “officials of the Government of Niger, that is, Tahirou Barke Doka [the First Counselor of the Embassy of Niger in Washington, D.C.] and Captain Ali Tiemogo [Chief of Maintenance for the air force component of the Niger Ministry of Defense] and “Fatouma Mailelel Boube and Amadou Mailele, both relatives of Tiemogo, while knowing that all or a portion of such money would be offered, given or promised, directly or indirectly, to foreign officials, namely Barke and Tiemogo” for the purpose of “influencing the acts and decisions of Barke and Tiemogo in their official capacities, and inducing them to use their influence with the Ministry of Defense.”

In addition to the conspiracy charge (count 1), the DOJ also charged Liebo with 10 counts of violating the FCPA’s anti-bribery provisions (counts 2 – 11), one count of violating the FCPA’s books and records provisions (count 12), three counts of aiding and abetting in the preparation of false corporate income tax returns (counts 13 – 15), and five counts of making false statements to the Defense Security Assistance Agency (DSAA) of the U.S. Department of Defense in connection with the sales (counts 16 – 20).

Liebo exercised his constitutional right to a jury trial and put the DOJ to its burden of proof.

The jury considered 19 charges against Liebo (on the first day of trial, the court granted the DOJ’s motion to dismiss one of the false statement charges) and he was acquitted of 17 charges.  The only charges Liebo was convicted of was one count of violating the FCPA’s anti-bribery provisions and one count of making a false statement to DSAA.  The FCPA charge related to the payment of $2,028 “for the airline tickets purchased for Barke’s wedding and honeymoon travel.”

As noted in this judgment, Liebo was sentenced to 18 months in federal prison.  However, as noted in a Trace Compendium entry, “Liebo only served two of the 18 months, having petitioned for, and eventually received, a retrial.”

As noted in this Eighth Circuit opinion, Liebo appealed and argued on appeal that “his convictions should be reversed because of insufficient evidence and because the district court erred in instructing the jury” and that the “district court abused its discretion by denying his motion for a new trial based on newly discovered evidence.”

As to the FCPA anti-bribery charge Liebo was found guilty on, he argued on appeal that: (1) there was insufficient evidence to show that the airline tickets were given to obtain or retain business; and (2) that there was no evidence to show that his gift of honeymoon tickets was done corruptly.

After setting forth the standard of review (i.e. considering the evidence in the light most favorable to the government with all reasonable inferences and credibility determinations made in support of the jury’s verdict), the court stated as follows as to obtain or retain business.

“There is sufficient evidence that the airplane tickets were given to obtain or retain business. Tiemogo testified that the President of Niger would not approve the contracts without his recommendation. He also testified that Liebo promised to “make gestures” to him before the first contract was approved, and that Liebo promised to continue to “make gestures” if the second and third contracts were approved. There was testimony that Barke helped Liebo establish a bank account with a fictitious name, that Barke used money from that account, and that Barke sent some of the money from that account to Tiemogo. Barke testified that he understood Liebo deposited money in the account as “gestures” to Tiemogo for some “of the business that they do have together.”

Although much of this evidence is directly relevant to those counts on which Liebo was acquitted, we believe it appropriate that we consider it in determining the sufficiency of evidence as to the counts on which Liebo was convicted.

[…]

Moreover, sufficient independent evidence exists that the tickets were given to obtain or retain business. Evidence established that Tiemogo and Barke were cousins and best friends. The relationship between Barke and Tiemogo could have allowed a reasonable jury to infer that Liebo made the gift to Barke intending to buy Tiemogo’s help in getting the contracts approved. Indeed, Tiemogo recommended approval of the third contract and the President of Niger approved that contract just a few weeks after Liebo gave the tickets to Barke. Accordingly, a reasonable jury could conclude that the gift was given “to obtain or retain business.”

As to corrupt intent, the court stated as follows.

“Liebo also contends that the evidence at trial failed to show that Liebo acted “corruptly” by buying Barke the airline tickets. In support of this argument, Liebo points to Barke’s testimony that he considered the tickets a “gift” from Liebo personally. Liebo asserts that “corruptly” means that the offer, payment or gift “must be intended to induce the recipient to misuse his official position….”  […] Because Barke considered the tickets to be a personal gift from Liebo, Liebo reasons that no evidence showed that the tickets wrongfully influenced Barke’s actions.

We are satisfied that sufficient evidence existed from which a reasonable jury could find that the airline tickets were given “corruptly.” For example, Liebo gave the airline tickets to Barke shortly before the third contract was approved. In addition, there was undisputed evidence concerning the close relationship between Tiemogo and Barke and Tiemogo’s important role in the contract approval process. There was also testimony that Liebo classified the airline ticket for accounting purposes as a “commission payment.” This evidence could allow a reasonable jury to infer that Liebo gave the tickets to Barke intending to influence the Niger government’s contract approval process. We conclude, therefore, that a reasonable jury could find that Liebo’s gift to Barke was given “corruptly.” Accordingly, sufficient evidence existed to support Liebo’s conviction.”

As to Liebo’s argument on appeal that the “district court abused its discretion by denying his motion for a new trial based on newly discovered evidence,” Liebo noted that “two months after his conviction, a NAPCO employee provided Liebo with a memorandum showing [a superior's] approval to the charge of the airline tickets.”  Liebo argued that the discovery of this evidence warranted a new trial.  In support, Liebo argued that “he was acquitted on all other bribery counts for which there was evidence that the payment in question was approved [by a superior].  Liebo argued that evidence of a superior’s approval of the wedding trip was a determinative factor in the jury’s verdict by “pointing to a question sent out by the jury during their deliberations asking whether there was ‘any information regarding authorization for payment of wedding trip.’”

After noting that motions for a new trial based on newly discovered evidence are looked upon with disfavor, the court also noted that “courts have granted a new trial based on newly discovered evidence especially when the evidence supporting the defendant’s conviction is weak.”

The court closed its opinion as follows.

“[T]he evidence against Liebo, while sufficient to sustain the conviction, was not overwhelming. Indeed, we believe that the company president’s approval of the purchase of the tickets is strong evidence from which the jury could have found that Liebo acted at his supervisor’s direction and therefore, did not act “corruptly” by giving the tickets to Barke. Furthermore, we are highly persuaded that the jury considered such approval pivotal, especially in light of the question it submitted to the court during its deliberations and its acquittal of Liebo on the other bribery counts in which evidence of approval existed. Accordingly, we hold that the district court clearly abused its discretion in denying Liebo’s motion for a new trial.”

In the re-trial, Liebo was convicted of aiding and abetting FCPA anti-bribery violations and making a false statement to the DSAA.  He was then sentenced to three years probation, two months home detention, and 400 hours of community service.

Based on all of the above, the question is raised – did Richard Liedo win or lose when he put the DOJ to its burden of proof?

In this the exam grading season, I know where I come out when the one with the burden is 90% unsuccessful.

At The 11th Hour

Monday, August 12th, 2013

[This post is part of a periodic series regarding "old" Foreign Corrupt Practices Act enforcement actions]

The 1989 Foreign Corrupt Practices Act enforcement action against advertising agency Young & Rubicam, Inc. (“Y&R”) and its executives Arthur Klein, Thomas Spangenberg and others is one of the more interesting enforcement actions of all-time.

For starters, the enforcement action had an unusual origin.  According to media reports, in connection with an unrelated tax fraud case against Robin Moore (the author of the “French Connection” and “The Green Berets”), law enforcement officials confiscated his diaries.  Moore was a friend of Jamaican Prime Minister Edward Seaga and the diaries led to the investigation of Y&R and its executives.

The indictment alleges a conspiracy between Y&R, Klein, Spangenberg and others to induce Eric Abrahams and Arnold Foote “in their official capacities with respect to the selection and retention of an advertising agency for the Jamaica Tourist Board” and to induce Abrahams and Foote “to use their influence with the Jamaica Tourist Board to affect and influence the decisions of the Board with respect to the selection and retention of an advertising agency.”

Eric Abrahams is described in the indictment as the Minister of Tourism of the Government of Jamaica and Arnold Foote is described as “a prominent Jamaican citizen with close political ties to the Jamaican Labor Party and to the Administration of Prime Minister Edward Seaga”.  As to Foote, the indictment further alleges as follows.  “Foote served as executive chairman of Martin’s Travel, an instrumentality of the Government of Jamaica, and he also acted in an official capacity on behalf of the Minister of Tourism and the Jamaica Tourist Board as an advisor to the Government of Jamaica with respect to tourism, advertising and public relations matters, including the selection and retention of an advertising agency for the Jamaica Tourist Board.

According to the indictment, the defendants “would and did arrange for and pay kickbacks” to Foote and through Foote, to Abrahams.  The indictment alleges that the “kickbacks and the manner in which they were paid would and did cause the Jamaica Tourist Board to make unnecessary and excessive expenditures for advertising services and deprived the Board of economically material information in its business dealings” with Y&R.

According to the indictment, as part of the conspiracy Robin Moore (described as a well-known author residing in Connecticut who had longstanding ties to the Island of Jamaica and was a close friend of Foote and Jamaican Prime Minister Seaga) and Frederick Sturges (described as a resident of Connecticut and an associate of Moore and Foote) “would and did act as middlemen and ‘go betweens’ for the communication of information and monies between and among the conspirators, and that certain kickback payments would be and were funnelled through bank accounts established and controlled by them.”

According to the indictment, “in order to disguise and conceal their unlawful activities, the conspirators would and did cause Y&R to enter into a contract with Ad Ventures, Ltd. a Cayman Island corporation created for the purposes of funneling kickbacks to Foote and Abrahams and affording Y&R an ostensibly legitimate reason for making such payments.”  According to the indictment, various means and devices were used to conceal the unlawful activities including: false statements to government investigators; testifying falsely before the Grand Jury; making some kickback payments in cash and others to a Cayman Islands bank account so as to make the tracing of funds more difficult; and Y&R failed to reflect the kickback payments on reports it filed with the DOJ pursuant to the Foreign Agents Registration Act.

In addition to the conspiracy charge, Y&R, Klein, Spangenberg - along with the “foreign officials” Abrahams and Foote – were also charged with violating RICO.  The predicate offenses alleged were multiple violations of the Travel Act.

The indictment further alleged that the defendants sought to buy the silence of various individuals who had threatened to expose the unlawful conduct.

Y&R, Klein and Spangenberg all pleaded not guilty and the case resulted in extensive media coverage.  In a statement, Y&R said that the criminal charges were “based on speculation and innuendo and [were] without substance or merit.”  A Y&R attorney (Thomas Barr of Cravath, Swaine and Moore) stated at the courthouse as follows.  “This is a lawsuit that involves characterization.  If you pull the characterization out, you haven’t got anything.”  Referring to the labeling of Foote in the indictment as a foreign official, Barr is quoted as follows.  “The reality is this.  Y&R makes very simple, conventional business arrangements in Jamaica.  By calling an advertising man a foreign official the prosecution has converted these charges into one of the most bizarre criminal allegations.”

According to media reports, many were shocked that Klein and Spangenberg were criminally charged.  Quotes to the media included the following.

“[Klein] is the straightest guy in the world.  I was absolutely shocked at the charges.  Of all the people I know in advertising, I don’t know anyone I’d least expect this to happen to.”

“Of all the people I’ve worked with, I’d rank them in the upper 10 percent for their ethical conduct.”

Y&R and Klein moved to dismiss the RICO charge.  Among other things, the defendants argued that the FCPA ”cannot serve as a basis for a Travel Act violation, nor in turn as a predicate for a RICO violation.”  The court denied the motion to dismiss the RICO charge.  (See here for the decision).

The defendants also moved to dismiss the conspiracy charge concerning payments to Abrahams on the ground that prosecution of that aspect was time-barred.  The defendants argued that “Abrahams ceased to be Jamaica’s Minister of Tourism more than five years prior to the return of the indictment.”  The court noted that a conspiracy charge is timely if it alleges the commission of at least one overt act in furtherance of the conspiracy within the applicable five-year statute of limitations and rejected the defendants’ arguments.  The court stated as follows.

“Whether Abrahams withdrew from the conspiracy is a question of fact for the jury.  Nor does Abrahams’ resignation as Minister of Tourism necessarily end the alleged conspiracy or his participation in it.  The indictment charges overt acts committed in furtherance of a single conspiracy from 1984 until 1989.  The allegation of overt acts committed within five years meets the requirements of the statute of limitations.”

The defendants also moved for a bill of particulars requesting specific information as to particular allegations including: the facts which supported the allegations that Mr. Foote was a foreign official within the meaning of the FCPA.  The court stated that “adequate notice of the manner in which Mr. Foote obtained his status as a foreign official” was provided in the indictment.  [See the above description of Foote's status]. 

Of further interest from the pre-trial proceedings, the DOJ moved to make an opening statement at trial.  The opinion states as follows.

“The government claims that the complexity of this case, both factually and legally, as well as the nature of the evidence to be presented warrant the need for opening statements.  First, the government argues that the term ‘foreign official’ as defined in the FCPA has a meaning broader than the ordinary meaning of the phrase.  Without categorizing the evidence for the jury, the government claims that the jury might misinterpret the significance of the evidence.  This amounts to a request to make a legal argument during opening statement which is precisely what should be avoided in opening statements.  Second, the government contends that a substantial portion of its case depends on ‘a complex confluence of circumstantial evidence’ which a jury may not understand if it is not allowed to make an opening statement.  However, ‘a mere recitation’ of what evidence is going to be presented does not necessarily ‘help jurors better understand the evidence when it is introduced.’  To go beyond that would risk stepping into the realm of legal argument which is not allowed.”

Shortly before the trial was to begin in February 1990, Y&R pleaded guilty (see here for the plea agreement).  Pursuant to the plea agreement, Y&R agreed to pay a $500,000 criminal fine.  Although not apparent from the plea agreement, Y&R pleaded guilty to one count of conspiracy to violate the FCPA.

If your only source of FCPA information is the DOJ’s FCPA website, this is where the story stops.  But the story does indeed continue.

The company issued the following press release on February 9, 1990.

“Young &  Rubicam Inc., announced today that it had reached an agreement with  the U.S. Attorney for the District of Connecticut under which the  government agreed to drop all RICO charges against the agency that had been brought in indictments on Oct. 6, 1989.  The charges were  made in connection with the agency’s successful attempts to obtain the advertising account of the Jamaica Tourist Board in 1981.

Further, the government dropped all the indictments charging that the agency was guilty of bribery of Arnold Foote, a Jamaican advertising executive, for the purposes of his bribing the Minister of Tourism, Eric Anthony Abrahams.  In addition, all  charges against Arthur Klein, an executive vice president of Young & Rubicam, and Thomas  Spangenberg, a former senior vice president of the agency  were dismissed.

The company, in order to put the case entirely behind it, agreed to plead guilty to conspiring to violate a section of the Foreign Corrupt Practices Act (FCPA) and accepted a fine of  $500,000.  The section of the Act under which the plea is made has been a controversial part of the law because it requires organizations and people who are placed in positions where criminal  activities may be taking place in a “reason to know” relationship with those activities, whether or not they, in fact, did know or if the events did or didn’t occur.  This section of the Act is no longer in the statute, having been removed by Congress in 1988.  Y&R was charged with events that allegedly took place in 1981 when this portion of the statute was in effect.  Ironically, if the case were brought today there would have been no such charge.

A Young & Rubicam spokesperson said, ‘We are particularly  pleased that one of Y&R’s finest individuals, Arthur Klein, has been cleared completely of all charges made against him.  The failed indictments caused Klein and his family extraordinary grief, and to  us this was the worst part of this entire procedure.  His complete exoneration is a cause for major celebration around Y&R.

The government no longer claims that the agency won the competition for the account on anything but the merits of its  presentation, or that Arnold Foote was a public official, as had  been charged.  To the best of Y&R’s knowledge, there is no  evidence that any monies were given to Abrahams.

For  its part, Young & Rubicam did agree that beginning in late 1981, some of its employees did on occasions hear reports of alleged  bribery efforts.  These rumors alleged that Foote, who had been  retained by Y&R to represent the agency in Jamaica, was using  money paid to him by the agency to bribe Abrahams.  Young &  Rubicam itself is not charged with paying bribes.  In fact, an  investigation by the agency in 1986 could find no evidence to support those rumors, and the government has conducted a four-year  investigation, and it has never proved that such bribes occurred.  Both of the individuals deny that any bribes were paid.  There is now no charge that any Young & Rubicam employee, past or present, knew enough ‘individually’ about these rumors to cause a violation.  Thus the agency agreed that because of that knowledge by ‘some’ of its employees it can be construed that it ‘technically’ entered into a “conspiracy.”

The  spokesperson stated, ‘In hindsight, we agree that an early investigation should have been carried out sometime during 1982 when these rumors began surfacing.  We did complete an investigation in 1986 and discovered no evidence of bribery.  The government in its four-year investigation has also not made such a discovery.  So, in  fact, we would have looked and found nothing.  But looking back, we agree that we should have done it in 1982; hence our guilty plea to that violation. ‘In fact we have been pressing since early October for an early decision so that the agency can put the matter  behind us and get on with our business.  This certainly allows us to  do just that.’”

[For on the FCPA' original knowledge standard applicable to third-party payments, see this prior post.]

As to the “reason to know” standard, media reports quote U.S. Attorney Stanley Twardy as follows.  “The ‘reason to know’ plea meant that while no individual within Y&R knew enough to understand that a law was being violated, the cumulative knowledge of the group working on the account, who should have been in touch with each other, would have given the agency the requisite information.”

According to media reports, the DOJ’s case “fell apart” on the eve of trial “when Y&R’s attorneys submitted to the [DOJ] a document that had been subpoenaed two years ago and that made clear, in the words of U.S. Attorney Twardy, “that Arthur Klein was not aware of what was going on.”  Twardy further stated that the document “suggested quite strongly that Spangenberg did not have criminal intent.”  Twardy further stated:  “We got a transcript of a tape of a phone conversation that made it obvious that the accusations against Mr. Klein were totally without merit.  Ironically, we’d been trying for two years to get a hold of that tape.”  Another media report quoted Twardy as follows.  “The transcript of the conversation was extremely exculpatory, meaning it gave evidence that Klein and in turn Spangenberg were not knowledgeable of the illegal aspects of the payments …”.

Request For Interlocutory Appeal Denied In Former Magyar Telekom Executive Case

Thursday, August 8th, 2013

This previous post highlighted the February 2013 decision by U.S. District Court Judge Richard Sullivan (S.D.N.Y.) in SEC v. Elek Straub, Andras Balogh and Tamas Morvai.  Judge Sullivan denied the defendants’ (former executives of Magyar Telekom) pre-trial motion to dismiss and his ruling principally focused on general personal jurisdiction issues, the FCPA’s specific jurisdictional element and statute of limitation issues.

As noted in this previous post, defendants soon thereafter moved to certify Judge Sullivan’s order for interlocutory appeal to the Second Circuit.  In pertinent part, the motion stated:

“The defendants respectfully submit that there is substantial ground for difference of opinion regarding the following three questions that lie at the  heart of the Order:  (i) whether the Court may exercise personal jurisdiction over the defendants; (ii) whether the SEC’s actions is barred by the applicable statute of limitations; and (iii) whether the SEC has adequately pled the use of an instrumentality of interstate commerce.”

Earlier this week, Judge Sullivan denied the defendants’ request for interlocutory appeal.

Judge Sullivan began by setting forth the legal standard for an interlocutory appeal:

“Litigants are generally required to wait for a final judgment before they may appeal. However, a district court may certify an immediate appeal of an interlocutory order if the court finds that the order (1) ‘involves a controlling question of law’ (2) ‘as to which there is substantial ground for difference of opinion’ and (3) ‘that an immediate appeal from the order  may materially advance the ultimate termination of the litigation.’ [...]  District court judges have broad  discretion to deny certification even where the statutory criteria are met. [...]  [An] interlocutory appeal is ‘a rare exception where, in the discretion of the district judge, it ‘may avoid protracted litigation.’  Consequently, ‘federal practice strongly disfavors discretionary interlocutory appeals [as they] prolong judicial proceedings, add delay and expense to litigants, burden appellate courts, and present issues for decisions on uncertain and incomplete records, tending to weaken the precedential value of judicial opinions.’”

As to the three issues presented, Judge Sullivan concluded that the applicable legal standards were not met.

Judge Sullivan also distinguished his opinion from a similar decision (here) in the S.D.N.Y. by Judge Shira Scheindlin granting Herbert Steffen’s motion to dismiss the SEC’s FCPA complaint based on general jurisdiction grounds.

Judge Sullivan stated as follows.

“Defendants also make much of the fact that, just weeks after the Court’s Order, Judge Scheindlin granted a motion to dismiss for lack of personal jurisdiction over a defendant allegedly engaged in covering up a bribery scheme.  However, the Court does not find any tension between the decision in [Steffen]  and its Order. In [Steffen] Judge Scheindlin acknowledged that ‘there is ample (and growing) support in case law for the exercise of jurisdiction over individuals who played a role in falsifying or manipulating financial statements relied upon by U.S. investors in order to cover up illegal actions directed entirely at a foreign jurisdiction.’   In finding personal jurisdiction to be lacking, Judge Scheindlin did not buck this trend, but rather found the facts before her to be distinguishable from these other cases. As Judge Scheindlin explained, the defendants in the Straub case ‘orchestrated a bribery scheme aimed at the Macedonian government, and as part of the bribery scheme signed off on misleading management representations to the company’s auditors and signed false SEC filings. By contrast, in [Steffen] ‘the SEC did not allege that the defendant directed, ordered or even had awareness of the cover ups that occurred at [the company] much less that he had any involvement in the falsification of SEC filings in furtherance of those cover ups. Nor is it alleged that his position as Group President of [the company] would have made him aware of, let alone involved in falsification of these filings.’  Thus, the situation presented in [Steffen], where the defendant had taken no action with any connection to the United States, is unlike this case and the others cited in the Order. Accordingly, the [Steffen] decision does not provide any reason to find that there is a difference of opinion as to whether personal jurisdiction exists in this case, let alone create ‘substantial doubt’ that the Court’s Order is correct. Moreover, Defendants do not identify any other authority that is inconsistent with the Order.”

Without Individual FCPA Defendants, There Would Be No FCPA Case Law

Wednesday, July 24th, 2013

Lest there be any confusion, I start this post with the basics.

The Foreign Corrupt Practices Act is a criminal statute.  Those that violate the FCPA ought to be charged.  Those who are found guilty of FCPA violations are not worthy of commendation.

Yet in the same way the Wall Street Journal recently stated (here) that former Goldman Sachs employee Fabrice Tourre “is doing a public service by forcing the SEC to defend its theories in court,” FCPA individual defendants who have put the DOJ (or the SEC in a civil FCPA enforcement action) to its burden of proof by testing their innocence have done a public service that ought to be recognized.

By recognized, I simply mean that it needs to be recognized that without FCPA individual defendants there would be no FCPA case law.

The unfortunate reality is that it takes individual defendants to go through unpleasant experiences, and for the stars to align in terms of the individual’s risk tolerance and financial resources, for there to be any FCPA case law.

Because of Stuart Carson, Hong Carson, Paul Cosgrove, David Edmonds, Keith Lindsey, Steve Lee, Mark Jackson, David Ruehlen, Joel Esquenazi and Carlos Rodriguez – there have been legal developments concerning the “foreign official” element.

Because of Eric Mattson, James Harris, David Kay and Douglas Murphy – there have been legal developments concerning the ”obtain or retain” business element.

Because of Frederic Bourke, David Kay and Douglas Murphy – there have been legal developments concerning mens rea issues.

Because of Pankesh Patel, Elek Straub, Andras Balogh, Tamas Morvai, and Herbert Steffen – there have been legal developments concerning jurisdiction.

Because of Mark Jackson and David Ruehlen – there have been legal developments concerning facilitating payments and statute of limitations.

Because of Frederic Bourke – there have been legal developments concering the local law affirmative defense.

Other FCPA individual defendants such as, but not limited to, John O’Shea and the other Africa Sting defendants of course tested their innocence as well, even if no formal FCPA case law resulted from these enforcement actions.

Each of the above individuals could have chosen the path of least resistance, and if they would have, there would be no FCPA case law.  Indeed, if just three individuals (Bourke, Kay and Murphy) chose the path of least resistance, there would be very little FCPA case law.

Even with the occassional FCPA individual defendant putting the DOJ (or the SEC) to its burden of proof, so little is know about the contours of the FCPA beyond DOJ or SEC enforcement theories and prosecutorial common law.

Should your response be that much is known about the judicial contours of the FCPA, I say show me another area of law where an issue is settled because of one appellate court decision or because of a few non-binding and unreported pre-trial trial court decisions.

Regardless of the facts and circumstances given rise to their FCPA liability in the first place, the above individual defendants have indeed done a public service that ought to be recognized, because without them, there would be no FCPA case law.